FRANCE Law and Practice Contributed by: David-James Sebag, Donald Davy and Marie-Sophie Chevreteau, Gide Loyrette Nouel
scription de parts de créateurs d’entreprise ) which allow them to subscribe, subject to vesting, to shares of the company at a given exercise price (similar to a stock option plan but with a favourable tax regime). The shares then subscribed are often subject to a call option in case of exit of the company. Alter - native ESOP structures such as warrants (BSA – bons de souscription d’actions ), stock options or free shares are also available but less frequently used given the applicable tax regime to the company and the beneficiaries. 5.2 Securities In France, as in many other countries, there are several instruments and securities generally used to incentivise founders and employees. These are designed to align the interests of the employees with those of the company and its shareholders, and to retain key talent within the company. Type of Instruments • Founders’ warrants (BSPCE – bons de sou- scription de parts de créateur d’entreprise ) are warrants, granted for free, which allow employees to subscribe to ordinary shares at a strike price determined at the alloca - tion date. This is the most commonly used instrument in France as it benefits from an attractive tax regime described below. The allocation is subject to several conditions, as follows: (a) the issuing company is less than 15 years’ old and is subject to corporate income tax; (b) the company is at least 25% held by individuals or companies or at least 75% directly held by individuals (specific rules exist to disregard the stake of certain investment funds); (c) the beneficiaries must be employees of
the issuing company (or of a subsidiary 75% directly held by the issuing com - pany) or board member (if the board can be assimilated with the conseil d’administration of a Société Anonyme ). Consultant, freelancer and, generally, board members of a Société par Actions Simplifiée cannot be allocated founders’ warrants; (d) the exercise price of the founders’ war - rants must correspond to the fair market value of the underlying shares of the company at the time of allocation. • Stock options are generally granted to employees who are not French tax residents (notably when the country of tax residency does not recognise founders’ warrants local - ly), as the tax regime for French employees is less favourable. • Warrants or BSA are generally subscribed to by consultant, freelance or independent board members who cannot receive found - ers’ warrants. Unlike the latter, the fair market value of the warrants must be paid at the time of subscription, and the tax regime is less favourable (see 5.3 Taxation of Instruments ). • Free shares: if the issuing company can no longer grant founders’ warrants (eg, because it is over 15 years’ old or because of its capi - tal structure), free shares can be granted to employees and corporate officers. The num - ber of free shares cannot represent more than 15% of the share capital (or 30% or 40% in certain circumstances) and a beneficiary can - not hold more than 10% of the share capital, provided that this threshold is determined based on the shares held by a beneficiary for less than seven years). The shares are effec - tively issued after an acquisition period of at least one year from granting, and the shares are then subject to a lock-up period (so the aggregate of the vesting and lock-up periods
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